WASHINGTON – Dec. 15, 2015 – The Federal Reserve is expected to hike interest rates this week, but historic patterns suggest there is no reason for homebuyers to panic.
In the early 2000s after the tech bubble popped, the Fed lowered its benchmark rate to 1 percent. Then, in the summer of 2004, it began raising it by 0.25 percent. At the time of the first increase, interest on a 30-year fixed mortgage was about 6.3 percent; by the last increase in 2006, the mortgage rate had climbed to only 6.68 percent – less than half a percentage point, even though the benchmark rate had climbed from 1.25 percent to 5.25 percent.
Mortgage rates could possibly follow the same course this time as economic uncertainty in the global economy continues to put downward pressure on long-term rates.
The Mortgage Bankers Association (MBA) predicts that the fixed home-loan rate will be roughly 4.8 percent at the end of 2016, an increase of less than 1 percent.
"At some point, you could get to a level of rates, 6 to 6.5 percent, that would really begin to crimp affordability and then that would be a real negative," says MBA chief economist Michael Fratantoni. "But at this point, it's going to be just a very modest headwind. Most of the other fundamentals are suggesting a very strong housing market in the year ahead."
Source: Washington Post (12/15/15) P. A13; Orton, Kathy
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